There are some rare scenarios where it makes sense, but usually only if you plan to buy a new car every 3-4 years anyway, which is not an economical or very Boglehead-ish way to do things.

Most of the time, you pay more in the long run by leasing, as you have no equity are on a path to never ever pay off a car, meaning you will have a car payment every month, forever. Leases are also more complicated to calculate, with more moving parts where the salesman will try to rob you if you don't really do your homework.

While leasing is rarely the fiscally prudent way to go, I have come around to "it depends".

Car ownership can be a utility, in which case get the cheapest rate you can and you might consider biking everywhere; or a consumable, in which case consume what you like within reason.

If you like nice cars, enjoy driving, don't enjoy dealing with the purchasing process, view your time as a money concern, etc. Leasing isn't the worst deal. I've done the math for a few friends and family and come to: if you know you want a nice car (e.g. BMW) don't know exactly what you'll need in three years, don't have lots of time to deal with car ownership, do the lease. After three years you're out a bit more money, but it's a couple grand at most spread over a few years, and you saved time in the purchase (not much to negotiate) and the sale (taken care of in the purchase). Add in free maintenance and a stress free nice car, it's not a "bad" deal.

For something like a Honda, no, don't lease, buy it new and drive it for at least five years, enjoy the low TCO.

As others have already stated, buying is almost always the correct answer and the cheaper way to do things.

2 scenarios I can think of where the lease may win:
1) if able to deduct for business use
2) if you plan on buying a new car every 3-4 years. Depending on which manufacturer and what kind of lease deals are offered, there are scenarios where you will come out ahead via the lease route. Obviously, the cheaper option is to still buy and hold a reliable car for as long as possible.

In regular car times I would say always buy but cars are changing quicker than they ever have. I think the next 10 years will be a huge shift in the auto industry so I would be cautious about buying a car long term unless it's a hybrid or electric.

Generally buy, hold and care for a car to minimize long term cost of ownership. But we are in a unique period of transition. I would not buy an internal combustion engine right now. If I had to acquire a new vehicle now, I would lease an ICE for 3 or 4 years to bridge to the next generation of electric vehicles.

Conventional Wisdom is to buy a car and hold it for a long time. However lease's do make sense sometimes, especially for cheap electric cars with Federal and State incentives. A lot of leases include all the government incentives in the lease period. I recently got a leaf for 200 down and 90$ a month all included.

I have a family member with an irrational phobia of cars that have more than 50,000 miles. They were buying new cars every 3 years as soon as the old car was just about to hit 50,000 and they would sell the car to the dealership as a trade in. I mentioned that they should probably consider a lease...so they leased their current car, but instead of getting the same class of car at a much lower cost they used that opportunity to "upgrade" to luxury class of vehicle since the monthly payments were the same

Oh well, I tried to save them some money considering how they purchase cars.
Maybe a lease never makes sense for this family member of mine.

If you were considering a plug-in hybrid vehicle for your next purchase, a lease may make sense due to rapid changes in technology. If you were getting a regular internal combustion engine vehicle just go with something 2-3 years old.

I think it's fascinating that consensus here now is that a major technological revolution will wipe out the value of ICE cars within 5-10 years. We just bought a new ICE that I plan to keep for the next 10-20 years, so that's disconcerting, but I also welcome a shift to all self-driving cars as much as anyone. But 10 years ago seemed like peak oil and the end of gasoline as a reasonable source of energy for a car, and now gas prices are still 1/2 of what they were back then, so we'll see... I'm marking this thread to revisit in 2022.

I have the money to buy - just wondering if it’d be better to pay less monthly and invest the difference.

The "pay less monthly" statement is incorrect over the long term.

If you buy the car you can likely drive it for ten years. This would mean that the lease would only have lower monthly costs for the first three year, but leasing would have much higher monthly costs for the next seven years while the car would cost nothing except for maintenance.

Another problem with trying to invest the money is that you would have a sequence of risk so being able to get a lot more investment return is not a sure thing. Here is an example that I have posted when people ask about doing this with a mortgage.

If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

People have already covered the lease Vs buy angle so I will address the AWD Vs FWD angle. Unless you need to scale steep snow covered hills on a regular basis FWD + winter tires will be fine. If you Google "winter tires Vs AWD" you will find numerous articles on how winter tires make a huge difference. I realize I live where there is no winter weather now but I did learn to drive in Canada and got by just fine on RWD + winter tires.

People have already covered the lease Vs buy angle so I will address the AWD Vs FWD angle. Unless you need to scale steep snow covered hills on a regular basis FWD + winter tires will be fine. If you Google "winter tires Vs AWD" you will find numerous articles on how winter tires make a huge difference. I realize I live where there is no winter weather now but I did learn to drive in Canada and got by just fine on RWD + winter tires.

Great explanation for "need" vs "want" for AWD. I literally cannot get up my driveway with 8 inches of snow on it in a FWD car with snow tires. Rather than hoofing it through the snow, I went with AWD/4WD vehicles years ago. But how many people have 800 feet uphill with a curve and tree that makes runup impossible?

For lease vs buy, the situation makes it an "it depends". There are sometimes heavily subsidized factory leases that make it worth considering. I've also seen questionable practices with some of my reps where they lease a car for their business for a very short duration and then sell the car to themselves personally for $1 at the end of the short lease. I'm sure an IRS audit wouldn't let that fly, but without an audit......

Part of the reason that leases are not usually favored here is that it's ok to buy a 3 year old Camry and keep it for 15 years, which a lease would never work out for. Ironically, it seems to also be ok to buy a $125k Tesla because.....well.....gotta keep the coal workers in jobs supplying 1/3 of the power generators in the US.

I think it's fascinating that consensus here now is that a major technological revolution will wipe out the value of ICE cars within 5-10 years. We just bought a new ICE that I plan to keep for the next 10-20 years, so that's disconcerting, but I also welcome a shift to all self-driving cars as much as anyone. But 10 years ago seemed like peak oil and the end of gasoline as a reasonable source of energy for a car, and now gas prices are still 1/2 of what they were back then, so we'll see... I'm marking this thread to revisit in 2022.

I respect thoughtful skepticism in general.

The difference between the two predictions is that the PO story from 10 years ago was never endorsed by any scientists or engineers, nor did it appear in scientific journals, etc. Basically, all they had were a bunch of unfunded amateurs, a few websites, an annual jamboree, and a couple planning scenarios run by the military.

In contrast, the electrification of light transport has ~3 million vehicles on the road, tens of billions spent in R and D by nearly all the major carmakers, supportive policy statements by dozens of govts around the world (who are also putting billions in incentives to make it happen), etc. And the rationales, lower pollution of several types and ultimately lower cost, better cars, are pretty popular and hard to argue against.

I think it's fascinating that consensus here now is that a major technological revolution will wipe out the value of ICE cars within 5-10 years. We just bought a new ICE that I plan to keep for the next 10-20 years, so that's disconcerting, but I also welcome a shift to all self-driving cars as much as anyone. But 10 years ago seemed like peak oil and the end of gasoline as a reasonable source of energy for a car, and now gas prices are still 1/2 of what they were back then, so we'll see... I'm marking this thread to revisit in 2022.

I respect thoughtful skepticism in general.

The difference between the two predictions is that the PO story from 10 years ago was never endorsed by any scientists or engineers, nor did it appear in scientific journals, etc. Basically, all they had were a bunch of unfunded amateurs, a few websites, an annual jamboree, and a couple planning scenarios run by the military.

In contrast, the electrification of light transport has ~3 million vehicles on the road, tens of billions spent in R and D by nearly all the major carmakers, supportive policy statements by dozens of govts around the world (who are also putting billions in incentives to make it happen), etc. And the rationales, lower pollution of several types and ultimately lower cost, better cars, are pretty popular and hard to argue against.

Night and Day.

There is a lot of fake 'science' out there. (One popular movie from about 10 years ago also comes to mind ) As usual, follow the money for the source of any 'scientific' report and it's likely to be tainted or politicized. The green industry in particular is very suspect and is heavily subsidized.

Anyway, we were talking about leasing... I think it can work for people who don't drive very much. I'd go through the annual limit after about 6 months.

Cars and the car market are changing rapidly. This will significantly affect things like resale on cars in 5-10 years.

If someone said that the KBB value of sedans was going to be halved in 5-7 years, does buying new at the current price still make sense?

I'm afraid I don't understand. The KBB value of sedans has ALWAYS halved in 5-7 years, sometimes more quickly than that depending on the brand/model.

Take the BH favorite Camry as an example, which is near legendary for holding its value well. A base model 2018 LE, lightly optioned, costs $26k (a top trim XSE V6 is more like $37k). In my area at least, the majority of the first page on autotrader (sorted by price, high to low) has high trim 2011 XLEs, SEs, and Hybrids with low mileage in the $13k range. There are 40 pages (probably a cap on the search rather than the actual number) of 2011 Camrys available, with the average at $10k and the cheapest at $3500. And remember, these are dealer advertisements for the most part. KBB will be substantially lower than this.

As a counterpoint, some of the kings of depreciation are in fact EVs. The Volt loses 59% of its value in 5 years. For the Leaf, it's a staggering 68%. These two EVs and the Chevy Impala are the only non-luxury models on the top 10 fastest depreciating cars.

Cars and the car market are changing rapidly. This will significantly affect things like resale on cars in 5-10 years.

If someone said that the KBB value of sedans was going to be halved in 5-7 years, does buying new at the current price still make sense?

I'm afraid I don't understand. The KBB value of sedans has ALWAYS halved in 5-7 years, sometimes more quickly than that depending on the brand/model.

Sorry, I was unclear. I was saying that if you bought your 2017 model whatever, and looked at the value proposition estimating its resale in 7 years in the future by looking at the KBB value for the 2010 model whatever TODAY, this could lead to a significant overestimate.

In other words, I expect the 5-7 year residual value of a car bought today (ICE or EV) could be much lower than those of similar 5-7 year old cars based upon historical experience.

and the staggering depreciation of EVs is due to incentives....a $10k incentive at sale time means that resale is $10k less the day after it drives off the lot!

From a financial perspective leasing NEVER makes sense.
1) Leases are based on projected/estimated miles. If you drive less miles, you do not get credit and the leasing company comes out ahead. If you exceed the miles allowed, you get whacked with extra mileage penalties. Some lessors may cut you some slack but only if they can hook you into another lease.
2) Even if you have minimal scratches or dings at turn in, watch out! The leasing company will try and squeeze what ever they can out of you; they need to maximize profit on the resale of the car.
3) Leases are focused on selling monthly payments; unless you are persistent and dig deep enough the true costs are hidden or obfuscated - cost of the vehicle, interest rate, residual value, penalties.
4) Lease costs are based on acquisition costs, interest rate and residual value. So you, the lessee are paying a premium for the lessor taking a "risk" on the residual value. That risk is for the most part pure baloney. Leasing companies, like insurance companies are in business to minimize risk. Caveat - the government can distort market conditions by offering ridiculous incentives for vehicles like electric cars.

Unless there is a primal or emotional need, own your vehicles till the wheels drop off or there is a safety reason to get another vehicle. Bogleheads' mantra of " costs matter" applies to vehicles as well.

I see some crazy good leases on a Bolt in CA. There are other "deal" leases if you don't drive much and are not brand/car dependent. Meaning, you just look for a great deal and don't care much if it is a Chevy, Toyota, Mitsubishi or Yugo.

If I was single, no kids, had my finances in order, I might hack a lease or two just to try different cars. It won't save you money, but you might come out about the same.

Last edited by bloom2708 on Tue Oct 31, 2017 1:01 pm, edited 1 time in total.

"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

From a financial perspective leasing NEVER makes sense.
1) Leases are based on projected/estimated miles. If you drive less miles, you do not get credit and the leasing company comes out ahead. If you exceed the miles allowed, you get whacked with extra mileage penalties. Some lessors may cut you some slack but only if they can hook you into another lease.
2) Even if you have minimal scratches or dings at turn in, watch out! The leasing company will try and squeeze what ever they can out of you; they need to maximize profit on the resale of the car.
3) Leases are focused on selling monthly payments; unless you are persistent and dig deep enough the true costs are hidden or obfuscated - cost of the vehicle, interest rate, residual value, penalties.
4) Lease costs are based on acquisition costs, interest rate and residual value. So you, the lessee are paying a premium for the lessor taking a "risk" on the residual value. That risk is for the most part pure baloney. Leasing companies, like insurance companies are in business to minimize risk. Caveat - the government can distort market conditions by offering ridiculous incentives for vehicles like electric cars.

Unless there is a primal or emotional need, own your vehicles till the wheels drop off or there is a safety reason to get another vehicle. Bogleheads' mantra of " costs matter" applies to vehicles as well.

I disagree with some of this. Leasing gives you optionality. And that has value. If you know or suspect, for example, that you’ll be leaving your job/moving in a few years and may not need the car (moving to NYC) or cannot take the car easily (moving to Europe/Asia for an assignment), that optionality may have real value. Likewise, if you think you may want to buy an EV in a few years (and as an owner of an EV I can tell you they are awesome, even in this early generation), leasing gives you a put option. Whether that put option will have real value to you depends on your circumstances. Reselling a three year old car may not be as efficient as leasing (taking into account the time it takes to sell to a third party). FWIW, I don't lease. But then I have kids that will gladly take a theee year old car off my hands.

It absolutely makes sense to lease sometimes. I’ll give you a few examples:

You want a new car every 3 years—leasing transfers the risk of higher than normal depreciation to the manufacturer. If you bought the car and it depreciates 50% and the lease contract only assumed 40% depreciatiation, thats tough luck manufacturer. Of course if the car only depreciates 30% and the contract priced you at 50% depreciation you could always buy the car at the prenegotiated 50% price and turn around and sell it at 70% to recoup your “extra payments” for the initially higher than expected depreciation.

You want a car for a very specific length of time. Say you have a 1 year assignment that requires you to relocate. You need a car but don’t want the hassles of buying and then selling. Leasing lets you just turn in the keys at the end of the day.

Your biggest concern is cash flow. You can go out and lease base model Kias or Hyundais for $99/mo $99/down. There really is no cheaper carrying cost than that for a new car. And after 3 years you would have driven a new, under warranty, car for $3700. That’s a deal in my book.

Now, none of these are going to be the most advantageous financial decisions, but you’re at least getting value out of the extra cost of leasing.

I believe one valid reason for leasing is that safety advances seem to be coming more and more rapidly. Adaptive cruise control, lane keep assist, rear cross traffic alert, and pedestrian auto braking were not offered fifteen years ago. I don't know what will be offered five years from now. I'm hoping for a good auto parallel park system and night vision. I know that cars have been sold with these systems already, but they seemed to be not ready for prime time yet. I would love a self driving car, but I don't expect it in five years. Maybe ten?

I'm surprised how little comment there is on a clear advantage for leasing for some people , deducting the lease as a business expense if able. I can and I do. It saves me thousands a year over buying. Often I will buy them at the end of the lease.

Last edited by eye.surgeon on Tue Oct 31, 2017 1:00 pm, edited 1 time in total.

"I would rather be certain of a good return than hopeful of a great one" |
Warren Buffett

...the electrification of light transport has ~3 million vehicles on the road, tens of billions spent in R and D by nearly all the major carmakers, supportive policy statements by dozens of govts around the world (who are also putting billions in incentives to make it happen), etc. And the rationales, lower pollution of several types and ultimately lower cost, better cars, are pretty popular and hard to argue against.

I don't doubt that it's coming. I just note that predicting a time frame is really hard. I'm actually a fairly early adopter of the hybrid, still driving a 10 year-old Prius. I love it, and I can easily argue that it's been a great deal financially. But 10 years later, hybrids are still just 2% of new car sales. Predicting that ICE will be wiped out in 10 years seems extremely bold.

You want a car for a very specific length of time. Say you have a 1 year assignment that requires you to relocate. You need a car but don’t want the hassles of buying and then selling. Leasing lets you just turn in the keys at the end of the day.

I once needed a second car for about two years due to relocation, so I bought a relatively cheap old car through Craigslist with the plan to sell it when I was done. At the time, I never considered leasing, and I made out OK, but in retrospect I would have done better with a lease. Cost would probably be the same, if not cheaper, and I'd be driving something much newer with no worries about getting hit with a major repair.

I believe one valid reason for leasing is that safety advances seem to be coming more and more rapidly. Adaptive cruise control, lane keep assist, rear cross traffic alert, and pedestrian auto braking were not offered fifteen years ago. I don't know what will be offered five years from now. I'm hoping for a good auto parallel park system and night vision.

This really struck me with our recent new car purchase. I had heard about these new features and just didn't think they would make a big difference to me. But within a couple days of driving around, I am extremely impressed by the leap forward and feel much safer in our new car.

There are some rare scenarios where it makes sense, but usually only if you plan to buy a new car every 3-4 years anyway, which is not an economical or very Boglehead-ish way to do things.

Most of the time, you pay more in the long run by leasing, as you have no equity are on a path to never ever pay off a car, meaning you will have a car payment every month, forever. Leases are also more complicated to calculate, with more moving parts where the salesman will try to rob you if you don't really do your homework.

I have one of those rare instances I think. We keep cars forever. Bought two similar Ford C-Max vehicles (one a hybrid, the other an energi). Different sticker and X-plan prices. DW bought outright with $5K down (insurance check for the totaled vehicle we were replacing) and a 5 year 0% loan on the balance. I leased a $4K more expensive model to leverage a $9K rebate on the plugin model. When the 3 year lease ran out, I purchased the car for cash (no used car rate loan). Total out of pocket, I paid $214 LESS using the lease+buy for a vehicle with an X-plan (and sticker) price that was $4K higher.

Car buying is often an apples and oranges compare, but after running both sets of numbers at the dealership for just my car, it was cheaper for me to lease/buy than buy outright. It pays to run the numbers if things are at all close. Things like a 0% vs 3% loan, or a $9K vs $1K rebate can make a difference.

You mentioned a Civic, well I leased a Civic this year in the Northeast!

I would say first that leasing is more complex than buying, and you need good credit to make it financially worthwhile. You will also need to do your homework, and most likely need to stick with lower trim models in order to get a good residual (higher trims with extra packages lower the residual and at the same time raise the price). If you check a site like LeaseHackr, they have forums where they discuss lease deals. They even show you how to calculate lease payments and the overall cost by hand. In most cases leasing costs more money over time. However, manufacturers from time to time do offer discounts large enough to make leasing more attractive, and if you are coming from another lease they can make it relatively cheap to drive a newer car under warranty (think sub-$200 a month leases).

Of course there are a ton of caveats: you can't drive too many miles (more than 12-15k and it's not worth it), you need good credit, there has to be a good promotion at the time, you may need to compromise on features, certain cars don't lease well, etc...

I ended up with a $0 down lease, 36 months/12k miles a year for $270 a month with tax. It ends up being a bit over $10k to rent it for 3 years, but I do have the option to buy it out at the end, walk away, or go with another brand. I'll have to see how I feel about leasing in 2.5 more years, but for now it's a car the fits my needs, is affordable to me and fits in with my overall financial plan (the alternative was the $1.5-2.5K in repairs yearly into a 2004 Volvo S40). For now I'll save the $100 a month difference from buying.

In 2004 it made a lot of sense to me to lease a new Buick Century because the $2,250 per year it cost me was about the same as it cost me to maintain a 1993 Buick Century the year before. That lease was for 4 years and thereafter I bought the car and kept it for 9 more years.

If you can lease for $150/month or under (all included), then I would not call it the most expensive. That’s not a bad deal. Never say never.

Can you give an example for $150/month lease all inclusive? Did you factor in first payment? some might charge $3k to $5k on top of the $150/month payment.

They have by me Kia Forte $47/mo with $2995 down + TTL for 36 months. Figure $500 worth of “fees” you’re at $144/mo. Maybe if you have taxes it nudges you a little over $150 but pretty close. And thats for a 4door sedan. I’m sure you can find a 2 door hatchback for less if you really look around or find a loss leader.

My mom and her husband (Nunzio) lease. And while it is taking me a while, I am thinking that is the right choice for them.

So yea he is my step dad, but my dad passed away when I was in my 30's and they married when I was 40. I was one of those that have been on my own since 17.

The key to me is their risk tolerance and how they fund their retirement.

My mom was very risk adverse. When they were first married, a high pressure mutual fund sales man convinced Nunzio to move a good part of his money to invest with him. I told mom not too, there was a fight, but she held her ground. Good thing too, Nunzio now has very little money. Now mom is far more risk adverse. She certainly has enough money to purchase cars for cash. Most of it is probably in bonds at this point. Very safe, very stable.

They fund their retirement through pensions and SS. They have more than enough and still do after 12 years or so of retirement. They kind of hate their RMDs as it throws off their tax planning and they cannot put back into their retirement plans. I know put it in taxable, or something similar, but they don't want to be bothered.

For them leasing their cars is probably best. They never put enough miles on them, and they don't have to worry about maintenance. They hate having their account balanced reduced. Just budget and spend part of the pension, fine enough. Heck I "yelled" at mom for having the oil changed every three months. It's okay djpetesk (that is what she calls me) its free and I enjoy sitting with everyone. Okay, mom, if it isn't stressing you out.

I leased a cheap Chevy Spark EV last year. The model was being discontinued. After rebates, my cost over the three year least is $1500, plus the few hundred buck surrender charge when I presumably surrender it.

It was a good deal because not only were there rebates, but manufacturer's incentives knocking down the price, and also an artificially lowered interest rate.

I believe one valid reason for leasing is that safety advances seem to be coming more and more rapidly. Adaptive cruise control, lane keep assist, rear cross traffic alert, and pedestrian auto braking were not offered fifteen years ago. I don't know what will be offered five years from now. I'm hoping for a good auto parallel park system and night vision.

This really struck me with our recent new car purchase. I had heard about these new features and just didn't think they would make a big difference to me. But within a couple days of driving around, I am extremely impressed by the leap forward and feel much safer in our new car.

Blind spot monitoring and the Adaptive Cruise control are probably my two favorite features but the rear cross traffic alert has been useful for those few brash people who gun it going 15-20mph down a parking lot aisle.
Not 100% sold on Lane keep assist but I keep it active anyway - maybe we'll be going on another long road trip sometime in the near future and it will come into play to let the driver know they are more drowsy then they were willing to admit (talking about myself).

Helped push us from getting a 2-3yr old car to a brand new one instead as we needed a replacement/addition immediately. Also doesn't hurt that all the taxpayers get to help us pay for our car too!

Here's one such circumstance that happened to the Mrs. and me: A long while ago, a couple of Honda dealers put out print ads offering Honda Civic leases for $64 or $67 per moth, depending on whether the cars were automatics or sticks. $1500 was due at the start of the lease.

The above seemed too good to be true and for a while it was, because we chased after the lease and the dealer(s) just couldn't seem to close the deal. (Bait and switch?) Happily, we finally secured a three-year lease for $64/month. And I'll tell you how good this was. We drove the Civic for three years, bought it from the dealer at the end of lease (we were WAY over the 10,000/year limit), and flipped it for a profit. (DW didn't want a sedan without side air bags).

Moral of the tale? You betchya leases can be a fine way to go. We drove the car at close to free over thirty-six months, then netted a thousand dollars over our initial lease payment when we sold it.

Moral of the tale? You betchya leases can be a fine way to go. We drove the car at close to free over thirty-six months, then netted a thousand dollars over our initial lease payment when we sold it.

This ^. For vehicles that hold their resale value, leasing is a good deal most of the time. With the caveat that you purchase at the end and either keep it or flip it for a profit. For vehicles that don't hold their resale value, your paying for a lot more of the depreciation while you own it. And most likely won't be worth the amount to purchase it at lease end.

You need to run numbers and go by your circumstances but leasing, if done right, isn't a bad way to go. The caveat being the decision to make after the lease is up and being in the same position (with perhaps not as good offers) again.

Yes if it's an EV, and the dealer/finance companies are passing the EV tax credits into the lease. You could end up with a much lower total cost of ownership during the lease period than owning. $200-250/month with 0 down leases are common. There have been some EV leases as low as $79/month with 0 down at some point if you got them at the right time.